13 - How to Dominate Indirect Cash Flow Statements (Fake Cash Method)

Example # 1

Our Accounts Receivable balance increased by $20,000 from the end of last period to the end of this period.

1. Accounts Receivable is an asset, so it must be debited to increase its balance.

2. Create journal entry:

                                                             Debit    Credit

Accounts Receivable                  $20,000

          Fake Cash                                            $20,000

3. A $20,000 increase in Accounts Receivable = $20,000 cash flow reduction on the statement of cash flows.

Example # 2

Our Accounts Payable balance increased by $10,000 from the end of last period to the end of this period.

1. Accounts Payable is a liability, so it must be credited to increase its balance.

2. Create journal entry:

                                                               Debit     Credit

Fake Cash                                         $10,000

        Accounts Payable                                   $10,000

3. A $10,000 increase in Accounts Payable = $10,000 cash flow increase on the statement of cash flows.

Example # 3

Our Accrued Expense Payable decreased by $25,000 from the end of last period to the end of this period.

1. Accrued Expense Payable is a liability, so it must be debited to decrease its balance.

2. Create journal entry:

                                                              Debit     Credit

Accrued Expense Payable            $25,000

            Fake Cash                                             $25,000

3. A $25,000 reduction to Accrued Expense Payable = $25,000 cash flow decrease on the statement of cash flows.